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Halogen Announces Third Quarter 2016 Results

Total revenue growth of 8%, including 12% recurring revenue growth

Net Income of $794,000, Adjusted EBITDA of $2.9 million

OTTAWA, Nov. 3, 2016 /CNW/ - Halogen Software Inc. ("Halogen" or the "Company") (TSX: HGN), a leading provider of cloud-based talent management solutions, today announced its financial results for the three months ended September 30, 2016. All figures are stated in United States dollars unless otherwise noted.

Third Quarter 2016 Financial and Operational Highlights:

Recurring revenue increased 12% from Q3 2015 to $16.7 million, representing 93% of total revenue in the quarter. Total revenue increased 8% from Q3 2015 to $17.9 million.

Net Income of $794,000, or $0.04 per diluted share, compared to a Net Loss of $3.8 million in Q3 2015.

Adjusted EBITDA1 of $2.9 million compared with $(3.0) million in Q3 2015.

Year to date cash flow provided from operating activities of $4.0 million compared to cash used in operating activities of $1.8 million in 2015.

Released version 16.1 of the Halogen TalentSpace™ suite, which included further integration with the Jobvite™ platform, enhancements across several key modules and the inclusion of Halogen Learning™ Starter Edition to give all customers access to Halogen product-specific learning courseware to support user adoption.

Added executive leadership in marketing and product strategy with the appointments of Paul Fitzpatrick as Chief Marketing Officer, and David Mennie as Vice President, Product Management and Strategy.

Continued a normal course issuer bid to purchase up to a maximum of 1,249,792 of Halogen common shares through March 13, 2017. In the third quarter of 2016, Halogen purchased and cancelled 99,700 shares for approximately $0.7 million under the current normal course issuer bid.

"Our Q3 results were highlighted by 12% recurring revenue growth and continued strong adjusted EBITDA performance of $2.9 million in the quarter," said Les Rechan, Halogen's CEO. "We are excited about the market opportunity in front of us and our vision for the future of performance-led talent management solutions for the mid enterprise. We will continue to focus on profitable growth and improving our customer acquisition velocity and retention in Q4 and beyond."

Financial Review

Halogen's recurring revenue in the third quarter of 2016 was $16.7 million, a 12% increase over Q3 2015. Total revenue increased 8% over Q3 2015 to $17.9 million. In the third quarter of 2016, approximately 81% of revenue was generated from customers located in the United States (79% in Q3 2015), 8% in Canada (10% in Q3 2015) and 11% in international markets (11% in Q3 2015).

Gross margin was $13.6 million, or 76% of total revenue, in the third quarter of 2016, compared to $12.2 million, or 74% of total revenue, in Q3 2015.

Net income was $0.8 million in the third quarter of 2016 compared to a net loss of $3.8 million in Q3 2015. Adjusted EBITDA was $2.9 million in Q3 2016 compared to $(3.0) million in Q3 2015; Adjusted EBITDA per share was $0.13 in Q3 2016, compared to $(0.14) per share in Q3 2015.

Adjusted EBITDA reconciliation2

3 months ended Sept. 30,

($000's except per share amounts)

2016

2015

Net income (loss)

$

794

$

(3,838)

Interest (income) expense and other, net

(16)

(16)

Current tax expense (recovery)

56

41

Deferred tax expense (recovery)

215

-

Depreciation and amortization

856

982

Share-based compensation

333

(194)

Restructuring charges

613

-

Adjusted EBITDA

$

2,851

$

(3,025)

Adjusted EBITDA per share

$

0.13

$

(0.14)

Total cash and investments was $35.4 million at September 30, 2016 compared to $36.1 million at December 31, 2015. Deferred revenue was $35.9 million at quarter-end, compared to $36.9 million at December 31, 2015 and $33.3 million at September 30, 2015.

Fourth Quarter and Full Year 2016 Financial Guidance

For the fourth quarter of 2016, the Company is expecting:

Recurring revenue in the range of $16.9 to $17.1 million

Total revenue in the range of $18.2 to $18.4 million

For the full year 2016, the Company is expecting:

Recurring revenue in the range of $66.4 to $66.6 million

Total revenue in the range of $71.8 to $72.0 million

For the full year 2016, the Company is increasing its expectation of:

Adjusted EBITDA in the range of $7.0 to $7.5 million

Third Quarter 2016 Financial Statements and Management's Discussion and AnalysisHalogen's Management's Discussion and Analysis and Consolidated Financial Statements for the three months ended September 30, 2016 will be available on SEDAR (www.sedar.com) and on the Halogen website at http://ir.halogensoftware.com.

Conference Call and WebcastHalogen will hold a conference call to discuss its third quarter 2016 results today (Thursday, November 3, 2016) at 5:00 p.m. (ET). The call will be hosted by Les Rechan, President and CEO, and Pete Low, CFO. To participate in the call, please dial 647-427-7450 or 1-888-231-8191 (Conference ID: 94393091) ten minutes prior to the scheduled start of the call. A replay of the conference call will be available until 11:59 p.m. (ET) on November 10, 2016 by calling 416-849-0833 or 1-855-859-2056. The conference call will be webcast live at http://bit.ly/2dGeyAa.

Forward-looking StatementsCertain statements in this release, including those that express management's expectations or estimates of our future performance, are "forward-looking statements" which reflect the Company's current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. In some cases, these forward-looking statements can be identified by words or phrases such as "may", "might", "will", "expect", "anticipate", "estimate", "intend", "plan", "indicate", "seek", "believe", "estimates", "predicts" or "likely", or the negative of these terms, or other similar expressions intended to identify forward-looking statements.

The Company has based these forward-looking statements on its current expectations and projections at the time the statements were originally made or at the time the information was originally provided, about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of the experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, and are subject to risks and uncertainties. Although the Company believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and it cannot assure that actual results will be consistent with these forward-looking statements. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including without limitation, those risks and uncertainties discussed in the Company's Prospectus and other filings on SEDAR.

If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements prove incorrect, actual results might vary materially from those expressed or implied by the forward-looking statements contained herein. These factors should be considered carefully and prospective investors should not place undue reliance on these forward-looking statements. Although the forward-looking statements contained herein are based upon what the Company currently believes to be reasonable assumptions, the Company cannot assure prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The Company does not intend, and the Company does not assume, any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

About Halogen SoftwareHalogen Software (TSX: HGN) offers a cloud-based talent management suite that puts ongoing, next-generation performance management principles at the center of all talent programs, including learning and development, succession planning, recruiting, and compensation. With over 2,100 customers worldwide, the company has been recognized as a market leader by major business analysts and has garnered the highest customer satisfaction ratings in the industry. Halogen's powerful, yet simple-to-use solutions, which also include industry-vertical editions, help organizations win with talent, by aligning their talent and business strategies to deliver exceptional outcomes. For more information, visit: http://www.halogensoftware.com. Subscribe to Halogen Software's TalentSpace blog: http://www.halogensoftware.com/blog/ or follow Halogen Software on Twitter: http://twitter.com/HalogenSoftware.

HALOGEN SOFTWARE INC.

Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss)

Three and nine month periods ended September 30, 2016 and 2015

(in United States dollars, tabular amounts in thousands, except share and per share data)

(Unaudited)

Three Months EndedSeptember 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Revenue

Recurring

$

16,746

$

14,915

$

49,487

$

43,879

Professional services

1,179

1,643

4,101

4,659

17,925

16,558

53,588

48,538

Cost of revenue

Recurring

3,200

2,899

9,440

9,266

Professional services

1,113

1,464

3,434

3,687

4,313

4,363

12,874

12,953

Gross margin

13,612

12,195

40,714

35,585

Expenses

Sales and marketing

6,510

8,384

22,328

24,482

Research and development

2,886

2,993

9,013

9,518

General and administrative

2,555

2,224

7,687

7,154

Foreign exchange (gain) loss

(1)

2,407

(19)

5,182

Restructuring charges

613

-

613

-

12,563

16,008

39,622

46,336

Operating income (loss)

1,049

(3,813)

1,092

(10,751)

Interest and other income

16

16

46

65

Income (loss) before income taxes

1,065

(3,797)

1,138

(10,686)

Current tax expense (recovery)

56

41

155

157

Deferred tax expense (recovery)

215

-

(38)

-

NET INCOME (LOSS)

$

794

$

(3,838)

$

1,021

$

(10,843)

Basic and diluted earnings (loss) per share

$

0.04

$

(0.17)

$

0.05

$

(0.49)

Weighted average number of basic common shares outstanding

21,519,961

22,115,055

21,646,748

21,994,810

Weighted average number of diluted common shares outstanding

21,804,756

22,115,055

21,792,123

21,994,810

HALOGEN SOFTWARE INC.

Condensed Consolidated Interim Statements of Financial Position

As at September 30, 2016 and December 31, 2015

(in United States dollars, tabular amounts in thousands)

(Unaudited)

September 30,2016

December 31,2015

ASSETS

Current assets

Cash and cash equivalents

$

35,377

$

36,133

Trade receivables (net)

7,393

12,458

Prepaid expenses

3,029

1,912

45,799

50,503

Non-current assets

Property and equipment

5,531

6,806

Intangible assets

2,137

2,287

Other long-term assets

714

329

$

54,181

$

59,925

LIABILITIES

Current liabilities

Trade payables and accrued liabilities

$

6,709

$

8,204

Derivative liabilities

23

2,632

Deferred revenue

35,917

36,922

Deferred leasehold inducement

162

339

42,811

48,097

Non-current liabilities

Deferred leasehold inducement

423

289

43,234

48,386

SHAREHOLDERS' EQUITY

Share capital

68,318

69,663

Share compensation reserve

2,294

1,330

Cash flow hedging reserve

104

-

Retained earnings (deficit)

(59,769)

(59,454)

10,947

11,539

$

54,181

$

59,925

HALOGEN SOFTWARE INC.

Condensed Consolidated Interim Statements of Cash Flows

Three and nine month periods ended September 30, 2016 and 2015

(in United States dollars, tabular amounts in thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months EndedSeptember 30,

2016

2015

2016

2015

CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES

Net income (loss)

$

794

$

(3,838)

$

1,021

$

(10,843)

Items not affecting cash:

Depreciation and amortization

856

982

2,917

2,947

Disposal of fixed assets

104

-

104

-

Share-based compensation

333

(194)

1,011

127

Unrealized foreign exchange (gain) loss

(421)

1,266

(2,421)

2,839

Deferred tax expenses (recovery)

215

-

(38)

-

Deferred leasehold inducement

176

(84)

(43)

(254)

Net changes in non-cash working capital items

(136)

2,112

1,441

3,369

1,921

244

3,992

(1,815)

INVESTING ACTIVITIES

Purchase of property and equipment

(514)

(465)

(1,119)

(1,031)

Purchase of intangible assets

(65)

(24)

(475)

(489)

Change in other long-term assets

10

42

(384)

105

Maturity of investments

-

-

-

3

Purchase of investments

-

-

-

(3)

(569)

(447)

(1,978)

(1,415)

FINANCING ACTIVITIES

Issuance of share capital

31

5

85

468

Repurchase of Class A common shares

(708)

(354)

(2,813)

(859)

(677)

(349)

(2,728)

(391)

Effect of exchange rate changes on cash and cash equivalents

18

(144)

(42)

(959)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

693

(696)

(756)

(4,580)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

34,684

40,363

36,133

44,247

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

35,377

$

39,667

$

35,377

$

39,667

_________________________________________

1 Adjusted EBITDA is a non-IFRS measure defined by the Company as earnings before interest income or expense, other income, depreciation and amortization, share-based compensation and restructuring charges. Adjusted EBITDA per share is calculated by dividing the Adjusted EBITDA by the weighted average number of shares outstanding in each period. Adjusted EBITDA and Adjusted EBITDA per share do not have a uniform definition. Our definition will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-IFRS measure of Adjusted EBITDA and Adjusted EBITDA per share should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with IFRS. There are inherent limitations with non-IFRS measures; we compensate for these limitations by reconciling Adjusted EBITDA to the most comparable IFRS financial measure. Management encourages investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view our non-IFRS financial measures in conjunction with the most comparable IFRS financial measures.

2 Note that we have changed the calculation of Adjusted EBITDA to no longer adjust for foreign exchange gains and losses. Please refer to the "Adjusted EBITDA" section of Management's Discussion and Analysis for more information and the impact of this change.